United Nations: Early Renovation Planning Reasonable, but	 
Additional Management Controls and Oversight Will Be Needed	 
(30-MAY-03, GAO-03-566).					 
                                                                 
The United Nations (U.N.) estimates that its planned renovation  
of the seven buildings on the Headquarters complex could cost	 
almost $1.2 billion. As the host country and the largest	 
contributor to the United Nations, the United States has a	 
significant interest in this project. This report (1) assesses	 
the reasonableness of the U.N. process to develop the renovation 
plans, (2) analyzes the potential cost to the United States, (3) 
identifies critical milestones before construction can begin, and
(4) discusses efforts to monitor and oversee the project.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-566 					        
    ACCNO:   A07005						        
  TITLE:     United Nations: Early Renovation Planning Reasonable, but
Additional Management Controls and Oversight Will Be Needed	 
     DATE:   05/30/2003 
  SUBJECT:   Construction costs 				 
	     Facility construction				 
	     Facility management				 
	     Financial management				 
	     International organizations			 
	     Cost analysis					 
	     Performance measures				 

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GAO-03-566

                                       A

Report to the Honorable Michael Enzi, U. S. Senate

May 2003 UNITED NATIONS Early Renovation Planning Reasonable, but
Additional Management Controls and Oversight Will Be Needed

GAO- 03- 566

Letter 1 Results in Brief 2 Background 5 Planning Process Is Reasonable
but Still in an Early Phase 8 Estimated Financial Impact of the Renovation
to the United

States 14 Key Milestones in the Renovation Process 16 Effective Project
Management and Oversight Needed for the Renovation to Be Successful 21

Conclusions 25 Recommendations for Executive Action 26 Agency Comments and
Our Evaluation 26

Appendixes

Appendix I: Scope and Methodology 28

Appendix II: Two Approaches to Renovating the U. N. Headquarters Complex
30 U. N. Secretary- General Offered Two Renovation Approaches 30

Appendix III: U. N. Consultants and Subconsultants 34

Appendix IV: Security Upgrades at the United Nations 35 Completed and
Planned Security Initiatives 35

Appendix V: Comments from the United Nations 37

Appendix VI: Comments from the Department of State 38

Appendix VII: Comments from the Office of Internal Oversight Services 40

Appendix VIII: Comments from the U. N. Board of Auditors 42 GAO Comments
44

Appendix IX: GAO Contacts and Staff Acknowledgments 45 GAO Contacts 45
Staff Acknowledgments 45

Tables Table 1: Estimated Financial Impact to the Federal Government of
Financing $1.2 Billion U. N. Renovation under Various Loan Terms 15

Table 2: Preliminary Cost Estimate of Approach 1 31 Table 3: Preliminary
Cost Estimate of Approach 2 32 Table 4: Firms Involved in the Conceptual
Planning Process 34

Figures Figure 1: U. N. Headquarters Complex 5 Figure 2: U. N.
Headquarters Complex and Proposed Location of

Swing Space under Approach 1 7 Figure 3: Five Phases of a Renovation
Project 13 Figure 4: Sequence and Estimated Time Frames for U. N.

Headquarters Renovation 18 Figure 5: Proposed Swing Space Site 20 Figure
6: U. N. Headquarters Complex and Proposed Location of

Swing Space under Approach 1 30 Figure 7: United Nations Security
Initiatives 35

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May 30, 2003 Let er t The Honorable Michael Enzi

United States Senate Dear Senator Enzi: The United Nations (U. N.)
Headquarters complex in New York City no longer meets current safety
standards and needs major renovation, which U. N. officials estimate could
cost almost $1.2 billion. Because the United States is host country to the
United Nations, the U. N. Secretary- General anticipates that the United
States will provide a no- interest loan for the renovation, similar to the
one the United States provided when the U. N. complex was built between
1949 and 1952. The U. N. General Assembly has not yet given its final
approval for the renovation project but has authorized its continued
design. In June 2001, we reported that the U. N. early planning process
had been reasonable. 1 Since that report, the United Nations has further
developed its plan, recommending an approach that would renovate the
entire complex; lease a new office building, or *swing space,*

built adjacent to the complex; and temporarily move most U. N. staff to
that building.

You asked us to update our prior report by assessing the revised U. N.
renovation plan. In this report, we (1) assess the reasonableness of the
U. N. process to develop the renovation plan, including the cost estimate
and physical security components; (2) estimate the potential financial
impact to the federal government of the renovation; (3) identify critical
milestones before construction can begin; and (4) discuss U. N. and
Department of State efforts to manage, oversee, and monitor the project as
it proceeds.

To undertake our work, we reviewed the 2002 Capital Master Plan and
related reports prepared by the U. N. architect- engineering firm, cost
estimating subconsultant, and security subconsultant. We also reviewed
construction and security industry literature and U. N. and U. N.

Development Corporation 2 project plans. To estimate the financial impact
1 U. S. General Accounting Office, United Nations: Planning for
Headquarters Renovation Is Reasonable; United States Needs to Decide
Whether to Support Work, GAO- 01- 788 (Washington, D. C.: June 15, 2001).

2 The U. N. Development Corporation is a New York State nonprofit public
benefit corporation tasked with constructing and leasing office space to
the United Nations.

of a no- interest loan, we analyzed the impact of the United States
foregoing future interest payments and assuming the risk of a potential U.
N. default on the loan. We discussed the Capital Master Plan with U. N.
officials, the consultants who developed the designs, industry experts,
and Department of State officials (see app. I for more information on our
scope and methodology).

Results in Brief U. N. officials followed a reasonable process consistent
with leading practices and recognized guidelines to develop the 2002
Capital Master

Plan. Thus far, the United Nations has completed the first phase*
conceptual planning* of a five- phase renovation process. To develop the
conceptual plan, U. N. officials and the architect- engineering firm
followed leading facility acquisition practices, including obtaining
detailed assessments of the complex*s condition and involving U. N.
managers in the planning. To develop the $1.2 billion preliminary cost
estimate, U. N. officials and the cost estimating subconsultant followed
the Construction Industry Institute*s best practices, including ensuring
that the estimate

included appropriate cost elements and hiring a firm to peer review the
estimate. U. N. officials and their security subconsultant also followed
recognized guidelines in developing the plan*s security upgrades,
including identifying threats to U. N. assets and prioritizing U. N.
security needs. Although the United Nations has followed a reasonable
process thus far, it is still early in the planning process and changes to
the conceptual plan and cost estimate are to be expected. For example,
Construction Industry Institute research indicates that the final cost of
any project at this early stage may vary from plus or minus 30 to 50
percent of the preliminary

estimate. Should the United States agree to finance the renovation, we
estimate the financial impact to the federal government for the renovation
would be over $700 million. 3 We estimate that the potential financial
impact to the federal government as a lender would be $591 million on a
no- interest loan

3 We express all figures on the potential financial impact to the federal
government in 2003 present value dollars.

of almost $1.2 billion 4 *mostly in foregone interest. 5 The Secretary-
General anticipates that the United States will provide a no- interest
loan to finance the renovation. However, the United States has not yet
made a decision whether to provide the United Nations a no- interest loan.
In addition, we estimate that the United States, as a member of the United
Nations, would repay $126 million of the loan principal. Another potential
financial impact to the federal government is the loss of federal tax
revenue on bonds to finance the proposed swing space building. The U. N.
Development Corporation is seeking congressional approval for a federal
tax exemption on the bonds it plans to issue to finance the construction.
If this exemption

is granted, the federal government would not realize tax receipts over a
30- year period of as much as $108 million in 2003 present value dollars.

Several critical milestones have to be met in 2003 for the planning
process to continue and construction to begin in 2005. First, and most
importantly, the United Nations is seeking a financing commitment for the
renovation

by October 2003. However, neither the United States nor the United Nations
have specified the nature of a financing commitment, according to U. S.
and U. N. officials. If an acceptable commitment is secured, the General
Assembly must then vote whether to proceed with the renovation, and the
United Nations can sign a lease with the U. N. Development Corporation for
the proposed swing space. Without a lease agreement, the corporation will
not construct the swing space that the United Nations would occupy during
the renovation. Second, to begin construction on the proposed swing space
in 2004, the corporation must obtain New York state and city approval to
acquire the site for the proposed swing space and also

receive a tax exemption for borrowing. According to U. N. officials,
without a tax exemption, the annual lease cost to the United Nations could
increase substantially and could thereby make the lease economically
unfeasible.

As the U. N. project progresses through the design phase, project
management, oversight, and monitoring mechanisms will be essential to
ensure cost and schedule control and accountability. In January 2002, the
United Nations hired a project management consultant to help develop a
broad framework for a project management plan. The United Nations does

4 We estimate that this loan would equal approximately $1. 07 billion in
2003 present value dollars. 5 The cost of a no- interest loan would depend
on its terms and conditions, such as the length of time the United Nations
would have to repay the loan. For our analysis, we assumed the United
Nations would repay the loan over 25 years.

not currently have sufficient staff to complete the project management
plan and effectively manage the project throughout the next phases, but it
plans to hire approximately 40 staff and/ or contractors in addition to
the 12 currently managing the project. The U. N. Board of Auditors and
Office of Internal Oversight Services are expected to oversee the
renovation project. While the United Nations has approved initial funding
for the Board of Auditors to conduct oversight of the renovation, the
Office of Internal Oversight Services does not have a dedicated budget or
personnel with the expertise in construction or capital projects to
effectively oversee a large construction project, according to U. N.
officials. The Department of State

also plans to monitor the renovation process and coordinate the U. S.
response to the financing request. Since our last report, the department
has assigned staff on a part- time basis and a point- person at the U. S.
Mission to the United Nations to a task force that monitors the Capital
Master Plan. In

addition, the department has tasked a senior official at the mission to
represent U. S. concerns on the renovation to the United Nations and other
member state representatives. However, the department has not formally
determined the task force*s mission or program goals or defined its
resources needs, including expertise.

In this report, we are recommending that the Secretary of State, in
consultation with the appropriate U. S. administration officials and other
U. N. member states, encourage the United Nations to complete and then
implement an effective project management plan and provide their internal
and external oversight offices with the resources needed to conduct
effective oversight throughout the renovation. In addition, we are
recommending that the Secretary of State formally define the mission and
program goals of its task force, determine the expertise needed, and
provide the resources necessary to support these efforts.

In commenting on a draft of this report, the United Nations and the
Department of State agreed with our conclusions and recommendations. The
Board of Auditors did not agree with our recommendation that the United
Nations provide it with the resources needed to conduct effective
oversight of the renovation project. A board official stated that the
United Nations recently provided the board with $35,000 for this purpose.
We modified our recommendation to acknowledge the board*s initial funding,

but continue to recommend funding for the board*s oversight function over
the course of the six- year renovation project.

located 48th U. N. Headquarters complex, in New York City, was among the
most modern facilities when it was constructed

and 1952. The United States financed construction of the the General
Assembly, Secretariat, and Conference by providing the United Nations with
a no- interest loan

to about $420 million in 2003 dollars. The rest of the complex* Library,
the underground North Lawn Extension, and Unitar Building* was built
between 1960 and 1982 and

through the U. N. regular budget or private donations (see fig. the
complex accommodates the needs of 191 U. N. member and approximately 4,700
U. N. staff. However, the U. N. buildings

to current safety, fire, and building codes and do not meet or security
requirements. The United Nations estimates it more than $2 billion over 25
years for repairs and system

in the absence of a major renovation.

N. Headquarters Complex

East River

South FDR Drive

Annex Conference

Building Secretariat Lawn

Street

Background The original considered between 1949 original complex*
Building* equivalent the Dag Hammarskjo:ld South Annex, was funded 1).
Currently, countries do not conform U. N. technology would cost
replacements Figure 1: U. FDR Drive

North Extension General Assembly

First Avenue

Unitar Building

Core complex SITE PLAN

North UNITED NATIONS HEADQUARTERS

Subsequent buildings LONG TERM CAPITAL MASTER PLAN

Buildings and Grounds Included in Renovation Sources: United Nations and
GAO.

In June 2001, we reported that the Secretary- General*s first Capital
Master Plan had defined the need for renovation, established the
SecretaryGeneral*s expectations for the project, and provided options for
a multiyear

Library

42nd Street

effort to renovate the headquarters. 6 The General Assembly reviewed the
plan and approved $8 million to further develop the conceptual designs and
associated cost estimates for the renovation. The General Assembly agreed
with the Secretary- General*s assumptions, which provided the framework
for the renovation planning. These assumptions included the following:

 The headquarters complex would remain at its current location in New
York.

 The complex should be energy efficient, free of hazardous materials, and
compliant with host city building, fire, and safety codes.

 The complex should meet all reasonable security requirements. 
Disruption to the work of the United Nations should be kept to a

minimum. In August 2002, the Secretary- General presented the General
Assembly with a more detailed Capital Master Plan and endorsed a
renovation approach that included the temporary relocation of most U. N.
staff and delegates to *swing space* in a proposed new building (see fig.
2 for the

swing space location and app. II for more information on the renovation
approach). 7 6 GAO- 01- 788 and United Nations, Capital Master Plan:
Report of the Secretary- General,

A/ 55/ 117 (New York, N. Y.: United Nations, June 28, 2000). 7 United
Nations, Capital Master Plan: Report of the Secretary- General, A/ 57/ 285
(New York, N. Y.: United Nations, Aug. 8, 2002).

Figure 2: U. N. Headquarters Complex and Proposed Location of Swing Space
under Approach 1

Proposed location of swing space

Source: United Nations.

In December 2002, the General Assembly adopted a resolution endorsing the
renovation approach and approved $25.5 million for detailed designs and
cost estimates to be developed in 2003. The General Assembly also approved
$26 million to complete the design process in 2004* 2005. 8 The General
Assembly does not plan to make a final decision on whether to proceed with
the renovation until financing is secured.

8 United Nations General Assembly, Resolution Adopted by the General
Assembly,

A/ RES/ 57/ 292 (New York, N. Y.: United Nations, Feb. 13, 2003).

Planning Process Is In developing the renovation conceptual plan and cost
estimate, U. N.

Reasonable but Still in officials, their architect- engineering firm, and
subconsultants followed a

reasonable planning process that was consistent with leading practices. In
an Early Phase

addition, U. N. officials and their security subconsultant followed a
process consistent with recognized guidelines to develop plans for
improving security at the U. N. complex. The United Nations is still in
the early planning stages of the project* the first phase of a five- phase
process. For this reason, changes to the scope and cost of the proposed
renovation are to be expected.

Process Used in Early The overall U. N. process to develop a conceptual
plan followed leading

Planning Phase Followed facility acquisition practices. 9 Leading
Practices

 Competitively procured an architect- engineering firm. U. N. renovation
officials used a competitive process to procure the services of an
architect- engineering firm (see app. III for the names of the firms
involved). The United Nations received 15 responses to its request for
proposals from firms representing six different countries. In 2001, the
United Nations selected and hired an architect- engineering firm to
prepare a comprehensive renovation design concept and cost analysis. The
architect- engineering firm used subconsultants with recognized expertise
in construction disciplines such as cost estimation, security, and
structural engineering.

 Obtained assessments of the complex*s condition. The
architectengineering firm and subconsultants reviewed condition
assessments conducted in 1998 and performed additional inspections and
assessments of the complex*s condition as needed. For example, they
completed a new assessment of the Secretariat Building*s deteriorating
window structure. U. N. officials subsequently concluded that it was more
cost effective to replace the window structure than to renovate it, as had
been previously planned.

9 Ralph S. Spillinger, in conjunction with the Federal Facilities
Council*s Standing Committee on Organizational Performance and Metrics,
Adding Value to the Facility Acquisition Process: Best Practices for
Reviewing Facility Designs, Federal Facilities Council Technical Report
#139 (Washington, D. C.: National Academy Press, n. d.).

 Retained firm to review the renovation conceptual plan. U. N. officials
retained the services of a consulting engineer to assist them in reviewing
the conceptual planning reports and recommendations.

 Involved U. N. managers in the planning. U. N. officials involved
facility managers, such as those responsible for building and program
management, security, and information technology, in the planning process
to ensure that the renovation would meet their needs. The

managers were asked to verify the conditions and problems identified by
the architect- engineering firm and subconsultants and comment on whether
the proposals would address their needs.

Process to Develop To develop a preliminary cost estimate, U. N. officials
and the cost

Preliminary Cost Estimate estimating subconsultant followed industry best
practices established by

the Construction Industry Institute. 10 Followed Best Practices

 Defined the scope of the project and work plan, including
responsibilities, schedule, and project budget. U. N. officials identified
the building improvements that were to be included in the project scope:
replacing heating, air conditioning, and electrical systems; refurbishing

the window structure on the Secretariat Building; enhancing security
measures; and modernizing communication and technology capabilities. The
U. N. contract with the architect- engineering firm established the
schedule for the cost estimating subconsultant to submit three cost

estimates for approval. To compare the renovation approach budgets, U. N.
officials also instructed the cost estimating subconsultant to develop one
renovation approach within the budget parameters of the 2000 Capital
Master Plan.

 Standardized the cost estimate format. U. N. officials used a
standardized cost estimate format, including elements such as professional
fees, labor and material costs, design and construction contingencies, and
escalation costs to account for inflation. The

standardized format enables U. N. officials to compare current and future
cost estimates as the project progresses through the design process.

10 The Construction Industry Institute is a research organization composed
of construction contractors and owners that seeks to improve the
construction and capital investment process.

 Reviewed and checked cost estimate. U. N. officials reviewed the cost
estimate to ensure that the conceptual planning estimates were within
acceptable cost parameters. For the final review, U. N. officials hired a
cost estimating consultant to peer review the cost estimate. While the
peer reviewer*s assumptions were more conservative than the
subconsultant*s assumptions, the peer reviewer*s cost estimate was

within 5 percent of the subconsultant*s cost estimate. Based on the peer
review, U. N. officials adjusted the cost estimate.

 Documented and reported the final cost estimate and range of accuracy.
The cost estimating subconsultant delivered the final cost estimate,
including contingencies that are meant to reflect the accuracy of the
estimate, to U. N. renovation officials for the 2002 Capital Master

Plan in August 2002. Consistent with industry practices, the subconsultant
added a design contingency to allow for changes that typically occur
during the design process. The subconsultant also added a construction
contingency to allow for unforeseen or unknown costs. For example,
structural conditions hidden by current construction may conflict with
planned renovations and require contract changes.

Process to Develop After the terrorist attacks of September 11, 2001, the
United Nations

Preliminary Plans for enhanced security at the U. N. complex and added
security measures to the Security Upgrades Followed

Capital Master Plan (see app. IV for further information). U. N. officials
and Recognized Guidelines

the U. N. security subconsultant identified the additional security
measures through a process consistent with recognized security risk
management guidelines. We have previously reported on these guidelines,
which members of the U. S. intelligence and defense community follow and
can provide a sound foundation for effective security. 11  Identified the
assets to be protected and the impact of their potential

loss. The security subconsultant identified assets at the United Nations
to be protected, such as the buildings and the perimeter. The United
Nations also evaluated the importance of each asset, the potential impact
of its loss, and the methods to maintain operations if the assets were
lost or damaged.

11 U. S. General Accounting Office, National Preparedness: Technologies to
Secure Federal Buildings, GAO- 02- 687T (Washington, D. C.: Apr. 25,
2002).

 Identified threats to those assets. U. N. security officials consulted
with relevant federal and local U. S. officials to assess changing threats
to the United Nations. According to U. N. officials and the security
subconsultant, they designed the security initiative in the Capital Master

Plan to address these threat levels.  Identified vulnerabilities. The
security subconsultant reviewed five previous vulnerability assessments
and conducted their own

assessment of the entire complex to verify vulnerabilities and identify
needed security upgrades.

 Assessed risks (potential for loss or damage) and determined priorities.
Following security guidelines from the U. S. Interagency Security
Committee, 12 the security subconsultant developed a risk

assessment that reflected its analysis of the threats to the U. N. complex
and its vulnerabilities. Based on the risk assessment, U. N. officials
then prioritized the security needs of the complex. According to an expert
from the Interagency Security Committee, the risk assessment process used
to develop the planned security upgrades was reasonable based on the
consultant*s report to the United Nations.

 Identified countermeasures that mitigate risks. The security
subconsultant used the risk assessment to identify and recommend more than
100 security measures for the Capital Master Plan. U. N. officials
organized these security upgrades into two components* those in the
baseline scope of the Capital Master Plan and those in a package of
options.

The security risk management guidelines are not a rigid set of procedures,
but rather recognized steps to ensure that critical issues are considered
when designing a security program. Additionally, U. N. security officials
sought peer review input from other U. N. departments and public and
private sector security experts when designing the security program.
According to security officials from the Departments of State, Defense,
and

Energy and the General Services Administration, the U. N. process for
developing the security initiatives in the Capital Master Plan was
reasonable.

12 The U. S. Interagency Security Committee was created in 1995 under
Executive Order 12977 to establish building security standards among
federal facilities. The committee consists of a chair* the Secretary of
Homeland Security* and 17 other federal agencies.

Renovation Planning Is in U. N. officials have completed only the first
phase of the renovation process

the Early Phases and by developing a conceptual plan for the proposed
renovation. While U. N.

Changes Are to Be Expected planning efforts for the renovation have been
reasonable so far, many

decisions that can affect the project scope, schedule, and cost have yet
to be made. For example, the General Assembly must decide whether it wants
to include certain options that were proposed in the 2002 Capital Master
Plan, such as installing extra back- up generators beyond those required
by current building codes. Events outside U. N. officials* influence, such
as the availability of construction materials and labor, may also change
the scope, schedule, and cost. In addition, the preliminary cost estimate
is likely to change as the design phase progresses and decisions affecting
the project*s

scope are made. Construction Industry Institute research suggests that the
final cost of a project may vary by plus or minus 30 to 50 percent of the
estimated cost at this early phase of a project. 13 While the United
Nations has completed the conceptual planning phase,

there are four remaining phases that renovation projects undergo, based on
typical best practices in the design and construction industry (see fig.
3). 13 This range applies to the estimated cost without design and
construction contingencies.

Figure 3: Five Phases of a Renovation Project Start- up Construction U. N.
renovation

Procurement Design Conceptual planning

Sources: Federal Facilities Council Technical Report #139 and GAO.

 Conceptual Planning* Various feasibility studies are typically conducted
to define the scope of work based on owner expectations for performance,
quality, cost, and schedule. The need for temporary space and the options
for meeting this need are identified. Several alternative design solutions
are identified, and one approach is selected.

 Design* The design matures into final construction documents comprising
the drawings and specifications from which bids can be solicited.
Estimated cost and schedule issues receive increasingly intense oversight
as this phase proceeds. The project scope defined at

this phase will greatly determine the cost of the project. In addition,
the cost of scope changes made after the design phase are higher.

 Procurement* This phase refers to owner procurement of long leadtime
equipment, such as unique or large electrical or mechanical equipment.
Delays in the delivery of this equipment could affect the phasing and
sequence of construction work and potentially cause delays.

 Construction* To execute the design, the services of a competitively
procured construction contractor and specialty contractors and consultants
are employed. The biggest challenge is the management of changes from the
owner, design problems, or unknown conditions on the site. Construction is
considered complete when the owner accepts occupancy of the building;
however, work may continue for some time to identify and correct
deficiencies in the construction work.

 Start- up* Start- up begins with occupancy of the building and entails
the testing of individual and systems components to measure and compare
their performance against the original design criteria.

Estimated Financial The Secretary- General has indicated that the United
Nations anticipates

Impact of the that the United States would provide a no- interest loan to
finance the U. N.

renovation. Should the United States agree to finance the renovation in
this Renovation to the

manner, we estimate that the financial impact of the renovation to the
United States

federal government would be over $700 million. 14 This amount would vary
depending on the terms and conditions of the financing arrangement. In
addition, we estimate that over a 30- year period, the federal government
would not realize tax receipts of as much as $108 million (2003 present
value dollars) on the federally tax- exempt bonds that would finance
construction of the proposed swing space. The U. N. Development
Corporation is seeking federal tax exempt status for the bonds it plans to
issue to finance the swing space building.

Financial Impact of the We estimate the potential financial impact to the
federal government as

Renovation to the Federal both lender to United Nations and member state
would be over $700

Government Is over $700 million for a $1.2 billion no- interest loan. As a
lender of a subsidized loan to

Million the United Nations, the federal government would forego future
interest

payments and assume the risk of a potential U. N. default on the loan. The
estimated financial impact to the federal government of a no- interest
loan for $1,193 million (repayable over 25 years) would be about $563
million for the interest subsidy to cover foregone interest payments and
$28 million for the default subsidy that covers the risk of a potential U.
N. default (see table

14 We did not estimate the financial impact to the United States if the
United Nations sought other financing for the renovation or did not
undertake the renovation.

1). 15 If the United States provided a subsidized loan with interest rates
of 1 percent or 2 percent, the federal government would provide an
interest subsidy of $443 million and $322 million, respectively. If the
United States agrees to finance the renovation, Congress would be asked to
appropriate the interest and default subsidies before the loan is made, as
provided for under U. S. credit reform law. 16 As a member of the United
Nations, the United States may also be assessed an additional amount to
repay the loan principal. We estimate that the net present value of the U.
S. assessment for the principal repayments made over a 25- year period
would be $126 million. 17 These repayments would need to be appropriated
yearly.

Table 1: Estimated Financial Impact to the Federal Government of Financing
$1.2 Billion U. N. Renovation under Various Loan Terms

(In millions of 2003 present value dollars)

1 percent 2 percent

No- interest interest interest

Interest subsidy $563 $443 $322 Default subsidy 28 31 34 U. S. portion of
principal repayment 126 126 126

Financial impact to federal government a $718 $600 $482

Impact as a percentage of renovation cost 60% 50% 40% Source: GAO analysis
of U. N. data. Note: Figures estimated using the Office of Management and
Budget Credit Subsidy Calculator and interest rate assumptions from the
FY2004 President*s Budget. Figures do not add due to rounding. a We
excluded any administrative costs, fees, or recoveries.

In estimating the financial impact to the federal government, we made
several assumptions. We assumed that the federal government would disburse
funds to the United Nations as a line of credit rather than a lumpsum
payment. The federal government would disburse the funds each year

15 We excluded any administrative costs, fees, or recoveries. 16 Federal
Credit Reform Act of 1990 (codified at 2 U. S. C. 661). If the United
States provides a loan to the United Nations, the Office of Management and
Budget and the Congressional Budget Office would calculate the interest
and default subsidies that would need to be appropriated based on the
actual terms of the loan document.

17 We estimate that the yearly nominal assessment for the principal
repayments would be $10.5 million.

over a 5- year construction period. To model the size of the
disbursements, we used the latest U. N. estimates of the funds it would
need each year to pay its contractors during the renovation. We assumed
that the United Nations would repay the loan over the subsequent 25 years
in equal semiannual payments based on an additional assessment of member
states. Since the United States is assessed 22 percent of U. N. operating
costs, we assumed the federal government would repay 22 percent of the
loan principal. However, because the United States does not currently
allow its

U. N. assessments to go toward interest payments on U. N. external
borrowing, we assumed that the federal government would not repay any of
the interest on a 1 percent or 2 percent loan. 18 Finally, we used the U.
N. preliminary cost estimate of $1,193 million from the 2002 Capital
Master Plan for the renovation, which includes scope options that the
United Nations has yet to decide on.

Loss of Federal Revenue The federal government would also not realize tax
receipts if the U. N.

from Swing Space Bonds Development Corporation is granted tax exempt
status for its construction

bonds. We estimate that the unrealized tax receipts over 30 years could be
as high as $108 million in 2003 present value dollars. This estimate
assumes that the U. N. Development Corporation would issue bonds for $350
million* the estimated construction cost for the swing space. We also
assumed that without the tax exemption, the bonds would earn 6.4 percent
interest and the average marginal tax rate would be 31 percent.

According to corporation officials, the corporation would pay a higher
interest rate on the bonds if it could not secure a tax exemption. The
higher interest rate would raise the cost of financing the construction,
which the corporation would then pass on to the United Nations in higher
lease costs. Corporation officials stated that the United Nations could
not afford the

lease under its current operating budget without the tax exemption. Key
Milestones in the

To continue the planning process, key efforts must be pursued and critical
Renovation Process

milestones met. Given the General Assembly*s decision in December 2002 to
proceed with design, the United Nations is seeking a financing commitment
from the United States for the renovation. Neither the United

18 This is an annual appropriation restriction that may not be made
applicable in this situation.

States nor the United Nations have specified the nature of a financing
commitment, according to U. S. and U. N. officials. Once an acceptable
commitment is secured, the General Assembly will decide whether to proceed
with the renovation, and the United Nations will be able to sign a lease
with the U. N. Development Corporation. The corporation is also working to
resolve a number of issues before it can begin construction on the swing
space building in 2004.

United Nations Is Seeking a Figure 4 shows that securing a financing
commitment is the next milestone

Financing Commitment in the renovation process. The Secretary- General
anticipates that the United States will offer a no- interest loan to
finance the renovation. For the

United Nations to remain on its current renovation schedule, the United
States would have to make a commitment to finance the renovation by
October 2003. However, U. S. and U. N. officials stated that neither the
United States nor the United Nations have specified the nature of a
financing commitment. According to U. N. officials, the General Assembly
will not make a decision to move forward with the renovation or sign a
lease for the proposed swing space building without a financing
commitment. According to U. N. Development Corporation officials, they
will not begin construction on the proposed swing space building until the
United Nations signs a lease. The corporation needs a signed lease before
it can issue bonds to finance the construction of the swing space
building. For the renovation project to stay on schedule, the proposed
swing space building would have to be available for occupancy in early
2006.

Figure 4: Sequence and Estimated Time Frames for U. N. Headquarters
Renovation

a United Nations Development Corporation.

The U. N. Development The U. N. Development Corporation must resolve two
key issues in 2003 for

Corporation Must Address the swing space to be available to the United
Nations in 2006. First, the U. N.

Several Issues to Begin Development Corporation is seeking to obtain state
and city approval to

Swing Space Construction secure ownership of the proposed swing space site
by the end of 2003 (see

fig. 5). According to corporation officials, New York state approval is
necessary because the site is currently part of a city park and lies
outside of the corporation*s development zone. Corporation officials also
said they are currently working to obtain support within the local
community, which has expressed concerns about the loss of the park space.
To compensate the community, the corporation proposes to build a bike path
along the

East River and the U. N. complex. However, according to corporation
officials, as of April 2003, no agreement had been reached. Once the
issues with the community group are resolved, the corporation must seek
New

York state legislation by June 2003 to add the proposed construction site
to its development district, according to corporation officials. The

corporation will then seek New York City approval of its plans for the
site. City officials have expressed support for the swing space
construction.

Figure 5: Proposed Swing Space Site

Source: GAO.

Second, the corporation is seeking a federal tax exemption for the bonds
it would issue to finance the swing space construction in early 2004.
According to corporation officials, without a tax exemption, the annual
lease cost to the United Nations could increase substantially, thereby
making the project economically unfeasible. Under the 1986 Tax Reform Act,
the U. N. Development Corporation and similar organizations lost the

ability to issue bonds that are exempt from federal taxes. Corporation
officials stated that they are working with members of Congress to
introduce legislation that would restore a tax exemption for the swing
space construction.

Effective Project As the project moves into the critical design phase, the
United Nations has

Management and begun the process to hire a consultant who will manage and
oversee the

final design and eventual renovation of the U. N. complex. These initial
Oversight Needed for

efforts are important as they lay the foundation for the project
management the Renovation to Be

plan to ensure that the project*s scope, schedule, and costs are
effectively Successful controlled. In addition, U. N. oversight bodies
anticipate additional resources and are developing audit plans to conduct
oversight of the renovation project. The Department of State and the U. S.
Mission to the United Nations have also initiated efforts to monitor the
project. The United States has a substantial interest in monitoring the
project, particularly if the United States agrees to finance it.

Effective Project A well- defined project management plan and adequate
project management

Management Needed to staff will be essential for the United Nations to
successfully complete the

Control Cost and Schedule renovation on time and within budget. U. N.
officials recognize the need and

importance of a project management plan and adequate staff to implement
the plan. In January 2002, the United Nations hired a project management
consultant to help develop a broad framework for a project management
plan. The consultant noted that once the United Nations establishes a
project management team, it will need to develop its project management
plan with detailed procedures. The consultant provided best practices
recommendations for creating a project management plan to control costs
and effectively implement the renovation. As of January 2003, the United
Nations had started the process to hire a consultant to provide project

management services, including developing the project management plan and
then supporting the United Nations in managing the project through the
design phase.

Based on the U. N. project management consultant*s report and Construction
Industry Institute research, 19 an effective project management plan will
help the United Nations control costs and schedule. An effective project
management plan includes three key elements. First, a clearly defined
scope of work that remains relatively stable will provide the basis for
project decisions. The scope should clearly define the project content and
parameters, schedules, milestones for execution, budgets, and expected
project outcomes. Second, policies and procedures that

19 Construction Industry Institute, Project Change Management, Special
Publication 43- l (Austin, Tex.: November 1994).

effectively manage scope and construction changes are important. These
policies and procedures should provide a means for analyzing and
documenting the reasons for changes and the implications of changes on
cost, schedule, and quality. Third, timely and accurate progress reports
on scope, cost, and schedule are important as a means of informing all
relevant parties and coordinating changes. Regular reporting would
identify key project issues that require discussion and impending issues
that require resolution. While the United Nations recognizes the
significance of developing a project management plan, it is important that
the United Nations continues to incorporate best practices to ensure the
plan*s effectiveness.

Project management staff are essential to controlling schedule and cost
changes because they will guide decision making and coordinate resources
throughout the project. Project management staff would represent the
United Nations as the owner of the project and facilitate coordination and
communication between the design firms and construction contractors. The
United Nations does not currently have sufficient staff to manage the
project effectively but, according to U. N. officials, plans to hire
additional staff and/ or contractors. The United Nations added seven staff
to its Capital Master Plan team during the conceptual planning phase,
including two security officials, and plans to augment its management
capability during design. In February 2003, the United Nations appointed
an Assistant

Secretary- General as the full- time executive director of the Capital
Master Plan management project. As of March 2003, the United Nations had
12 people on the renovation project management staff. The United Nations
is evaluating options for acquiring additional expertise and anticipates
having a management team of 20 staff and contractors during the design
phase and

a team of about 40 staff at the peak of construction. Office of Internal
Oversight

In a February 2003 resolution, the General Assembly stressed the Services
and the Board of

importance of oversight in implementing the Capital Master Plan and
Auditors Plan to Conduct

requested the Board of Auditors and all relevant oversight bodies, such as
the Office of Internal Oversight Services, to initiate immediate oversight
Oversight of the Renovation

activities. 20 In our last report, we noted that the Office of Internal
Project

20 United Nations General Assembly, Resolution Adopted by the General
Assembly,

A/ RES/ 57/ 292.

Oversight Services 21 did not have the expertise to perform an oversight
role, but the office had agreed to assume such responsibility by hiring
people with the necessary skills. Since then, the office has assigned one
staff member to begin researching the Capital Master Plan on a part- time
basis. However, the office has not developed a plan detailing the
oversight

functions it plans to pursue or hired additional staff. Officials from the
oversight office stated that it has requested funding so that it can hire
contractors to help evaluate the Capital Master Plan, the project
management plan, and the security upgrades. The officials anticipate that
these contractors would have architectural and construction skills and

knowledge of New York City building codes. The Board of Auditors had not
yet conducted oversight of the Capital Master Plan but plans to complete
an audit strategy by June 2003. 22 The board has decided to review
financial accounts, compliance with U. N. procurement regulations, and the
effectiveness of Capital Master Plan management. After the board completes
its audit strategy, it plans to determine the additional resources and
expertise it needs to conduct oversight of the renovation. According to a
board official, the United Nations approved initial funding of $35,000 in
April 2003 to cover the audit of Capital Master Plan activities during
2003. However, the board will require additional resources for oversight
as the renovation progresses. Department of State Has

The United States has a substantial interest in the renovation project and
Begun Monitoring

its costs, particularly since the Secretary- General anticipates U. S.
Renovation Planning

financing. As the project goes forward, the United States will decide
whether to finance the renovation and will take part in other key
decisions. The Department of State, the lead foreign affairs agency
responsible for developing and implementing U. S. policy toward the United
Nations, has assembled a task force to monitor U. N. implementation of the
Capital Master Plan. While Department of State officials have consulted
with other U. S. government officials concerning the renovation project,
they have not yet created a formal framework that defines the task force*s
mission and program goals. In addition, a department official stated that
they do not

21 The U. N. Office of Internal Oversight Services conducts internal
oversight of U. N. activities through monitoring, inspection, and
evaluation. The office reports to the Secretary- General. 22 The U. N.
Board of Auditors is an external audit agency that audits U. N. accounts,
funds, and programs. The board reports to the General Assembly.

have the expertise to undertake effective monitoring of the project as it
progresses. In our June 2001 report, we recommended that the Department of
State

develop a comprehensive U. S. position on matters pertaining to the
renovation. We further recommended that if the United States were to take
a position in support of the renovation, the department should consider
obtaining expertise in construction management and financing. In June
2001, the department took a position in support of renovating the U. N.
headquarters complex and created an interagency task force to monitor the
renovation project in August 2002. The task force consists of six
officials from the department and the Office of Management and Budget who
work part- time on task force activities and a point- person at the U. S.
Mission to the United Nations who monitors U. N. renovation planning
efforts. In addition, a senior official at the Ambassador level represents
U. S. concerns on the renovation project to the United Nations and other
member state representatives. To assist the task force, the department has
also retained a part- time consultant with building construction and
security experience.

Although the Department of State has organized the task force, it has yet
to develop an interagency framework that sets forth the task force*s
mission or program goals. To monitor the project and coordinate the U. S.
decision on whether to finance the renovation, the department will
undertake

diplomatic, federal financing and budgeting, and construction activities
that will require participation from numerous government officials and
organizations with the necessary expertise. A framework that describes the
task force*s mission, program goals, and coordinating mechanisms will help
ensure that each organization has a clear understanding of its role,
responsibilities, and expectations. The development of this framework is
important because the task force*s monitoring role is likely to continue

through the four remaining phases of the renovation project. Furthermore,
with established mission and program goals, the department could specify
resource needs, including appropriate skills needed to achieve a
successful outcome of the project. As the renovation proceeds and the
management of the project increases in magnitude and complexity, the
department can identify and obtain the critical skills that will be needed
to monitor the project. Department officials have stated that they lacked
the needed expertise to monitor a renovation project of this magnitude.

It is also important that the task force is staffed appropriately because
the Department of State will have a number of key questions and issues to

address over the life of the project, particularly if the United States
agrees to finance the renovation. Some key questions and issues to be
addressed include the following:

 If the United States offers to finance the renovation, how would it
structure a loan to the United Nations? What should be the loan*s terms
and conditions? Would the United States provide a loan that fully funds
the renovation project? If there are cost increases during the renovation,
would the United States provide additional financing and, if so, under
what terms and conditions?

 Does the United Nations have internal controls in place to effectively
manage changes in costs, scope, and schedule throughout the design and
construction of the project?  To what extent are U. N. officials
coordinating the renovation design and

construction with that of the proposed new visitors center?  What types
of incentives will the United Nations include in its contracts

with design and construction firms to ensure that their work meets U. N.
expectations?

 Since the design phase provides the greatest opportunity to make
decisions that could minimize future building maintenance and operating
costs, to what extent are these future costs being considered during the
design phase?

 How will U. N. officials ensure that value- engineering principles* a
formal technique used by contractors or independent teams to identify
methods of constructing projects more economically* are applied during the
design and construction phases?

The department*s position on each of these issues and the level of
monitoring it will undertake will drive its resource and expertise needs.

Conclusions The United Nations has used a reasonable process thus far to
develop its renovation plans, but it is still early in the project and
changes in the

schedule and cost estimates are to be expected. While the General Assembly
has funded the project*s design, a commitment to finance the renovation
will be needed by October 2003 for the United Nations to remain on its
current schedule and sign a lease for the swing space. If the

planned swing space is not available, the United Nations will have to
reconsider its renovation approach, potentially leading to delays in the
renovation process. The United States, however, has not yet taken a
position on whether or how to finance the renovation. In addition, careful
management and oversight of a project of this magnitude and complexity
will be necessary to minimize schedule and scope changes. The renovation*s
completion, final cost, and quality could be adversely affected if the
United Nations does not provide adequate staff to manage the renovation
and establish careful controls to limit scope changes. Continued
monitoring by the Department of State will be critical as the project
progresses and various issues arise, particularly if the United States
finances the renovation.

Recommendations for We recommend that the Secretary of State, in
consultation with

Executive Action appropriate administration officials and other U. N.
members, direct the

U. S. representative to the United Nations to  encourage the United
Nations to complete and implement an effective

project management plan that will guide decision making and coordination
throughout the renovation project, and

 encourage the United Nations to provide the Office of Internal Oversight
and the Board of Auditors with the resources needed to conduct effective
oversight of the Capital Master Plan as the project progresses.

In addition, to ensure that U. S. interests are effectively represented as
the United Nations proceeds through the design phase, we recommend that
the Secretary of State define the mission and program goals of the task
force currently monitoring U. S. participation in the Capital Master Plan.
We further recommend that the Secretary determine the expertise the task

force needs to fulfill its role and ensure that it has the resources
necessary to monitor the project over its duration.

Agency Comments and In commenting on a draft of this report, the United
Nations and

Our Evaluation Department of State agreed with our findings and
recommendations.

However, the Board of Auditors disagreed with our recommendation calling
for resources for the board to conduct oversight. A board official stated
in April 2003 that the United Nations approved $35, 000 for the board to
conduct oversight of the $1.2 billion renovation project. We modified our

recommendation to acknowledge the board*s initial funding, but we continue
to recommend funding for the board*s oversight function over the course of
the 6- year renovation project. Ensuring that the board has the necessary
resources to conduct oversight will be important throughout the

renovation. The board also provided technical comments to our report,
which we incorporated as appropriate. Written comments from the United
Nations, Department of State, Office of Internal Oversight Services, and
Board of Auditors, along with our response, are in appendixes V through
VIII. We provided the Office of Management and Budget with a draft of our
report, but the office did not provide any comments.

As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the report date. At that time, we will send copies of this report to the
Secretary of State; the U. S. Ambassador to the United Nations; the
Director, U. S. Office of Management and Budget; the U. N. Secretary-
General; and interested congressional committees. We also will make copies
available to

others on request. In addition, the report will be available at no charge
on the GAO Web site at http:// www. gao. gov.

If you or your staff have any questions about this report, please contact
me at (202) 512- 8979. Additional GAO contacts and staff acknowledgments
are listed in Appendix IX. Sincerely yours,

Joseph A. Christoff, Director International Affairs and Trade

Bernard L. Ungar, Director Physical Infrastructure Issues

Appendi Appendi xes I x Scope and Methodology To assess the reasonableness
of the process used by the Secretariat for project planning and
development, including the cost estimate and security plans, we reviewed
U. N. records, including reports developed by the architect- engineering
firm and security assessments prepared for the United Nations. We also
researched industry practices related to construction project planning and
development, cost estimating, and security plan development. We compared
the Secretariat*s efforts in project planning and cost estimating with
industry practices as identified by the Federal Facilities Council and the
Construction Industry Institute. We also reviewed the assumptions
supporting the cost estimates, including contingencies and swing space
costs. In assessing the process the

Secretariat used to develop its security plan, we used industry-
recognized guidelines as criteria. We also obtained input from U. S.
federal agency security experts on the process used to develop the United
Nations* security plan. In addition, we reviewed other recently
implemented or planned security initiatives and their interface with the
security components of the Capital Master Plan. We discussed various
aspects of the project, including the process by which the Capital Master
Plan was

developed, with U. N. renovation project staff and consultants. To assess
the potential financial impact to the federal government of the
renovation, we modeled the financial impact of a no- interest, 1 percent,
and 2 percent loan to the United Nations. We did not assess the financial
impact to the federal government of the renovation if the United Nations
sought other financing options, or if the United Nations did not undertake
the renovation and repaired or replaced major building systems as they
failed. We reviewed the most current renovation cost estimates, the
renovation cash flow statement, the U. N. Development Corporation cost
estimate for

swing space, interest rates for corporate and tax- exempt bonds, interest
rate assumptions in the President*s budget for fiscal year 2004 1 and the

Economic Report of the President (1999), and the 1948 loan agreement
between the United Nations and the United States. We used the Office of
Management and Budget*s Credit Subsidy Calculator to estimate the interest
and default subsidies for interest- subsidized loans under various terms.
In doing so, we made several key assumptions including the interest rate,
the U. S. disbursal of funds, and a repayment plan. We then discussed

1 Office of Management and Budget, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 2004 (Washington, D. C.: U. S.
Government Printing Office, March 6, 2003).

our assumptions with Department of State, Congressional Budget Office, and
Office of Management Budget officials. To analyze the critical milestones
remaining in the renovation project, we reviewed the critical paths and
the estimated schedules for the U. N. renovation and the U. N. Development
Corporation*s proposed swing space building. We compared these critical
paths and linked them to illustrate the necessary milestones and their
sequence. We then clarified the sequence and duration of these milestones
in interviews with Capital Master Plan

staff at the United Nations, officials at the U. N. Development
Corporation, and officials at the Department of State. In addition, we
consulted with construction industry experts and legal counsel within GAO
to evaluate and comment on the validity of the milestones* sequence.

To assess U. N. and Department of State efforts to monitor and oversee the
renovation, we reviewed U. N. documents such as the Capital Master Plan,
the U. N. renovation project management plan, the U. N. resolution
pertaining to oversight of the Capital Master Plan, and the mission
statements of the Office of Internal Oversight Services and the Board of

Auditors. We subsequently spoke with U. N. and Department of State
officials to determine their past and anticipated oversight roles and
responsibilities in the U. N. renovation. In addition, we discussed the
personnel required to adequately oversee the renovation, the funding
received and requested for renovation monitoring, and the procedures in
place for decision making and oversight.

In conducting our review, we received the full cooperation of the United
Nations, U. N. Development Corporation, U. S. Mission to the United
Nations, and the Department of State. We conducted our review between June
2002 and April 2003, in accordance with generally accepted government
auditing standards.

Renovating the U. N.

Appendi I I x Two Approaches to Headquarters Complex 2002 Capital Master
Plan, the U. N. Secretary- Street

General two approaches to renovating the U. N. headquarters complex. to
the Capital Master Plan, the unique conference room needs of Nations were
a driving factor in the Secretary- General*s

of these approaches. The two approaches include relocating most U. N.
activities during much of the work to swing space in a proposed new
building near the

(see fig. 6), or U. N. staff through more limited swing space in a new
four- story constructed on the U. N. headquarters complex where the South
is currently located.

General endorsed the first approach, and the General approved the
development of renovation designs based on that

N. Headquarters Complex and Proposed Location of Swing Space under

East River

South FDR Drive

Annex Conference

Building Secretariat North Lawn

Extension General

Assembly Swing space

First Avenue

Unitar Building

complex SITE PLAN

North UNITED NATIONS HEADQUARTERS

buildings LONG TERM CAPITAL MASTER PLAN

space Buildings and Grounds Included in 48th U. N. Secretary- General In
the August Offered Two

presented According Renovation the United Approaches development 
temporarily construction U. N. complex  rotating building Annex The
Secretary- Assembly approach.

Figure 6: U. Approach 1

FDR Drive Core Subsequent Swing Renovation Sources: United Nations and
GAO.

Library

42nd Street

Approach 1 Under the first approach, most U. N. staff and activities would
temporarily relocate to swing space in a proposed new office building near
the U. N.

complex during much of the renovation. U. N. consultants estimated that
the renovation would take less than 5 years to complete and cost about $1.
2 billion. As shown in table 2, the cost estimate includes a baseline
scope*

removing asbestos; replacing the electrical, plumbing, and climate control
systems; and installing an upgraded fire suppression system. The cost
estimate also includes leasing swing space for 4 years from the U. N.
Development Corporation, a New York State nonprofit public benefit
corporation tasked with constructing and leasing office space to the
United Nations. Additional cost factors include the replacement of the
Secretariat Building*s window structure and additional scope options that
the General Assembly has not yet decided to include in the renovation.
These options include additional safety and security measures, emergency
backup provisions, and sustainability measures to address environmental
goals. The cost estimate excludes construction of an additional conference
room on the complex 1 and security upgrades that the United Nations will
complete before the renovation begins.

Table 2: Preliminary Cost Estimate of Approach 1 Renovation component
Estimated cost (in millions)

Baseline scope $991 Swing space leasing 96 Secretariat building window
structure 36 Exclusion of conference room -57 Completed security upgrades
-17

Subtotal $1, 049

Scope options 144

Tot al $1, 193

Source: GAO analysis of U. N. data.

The U. N. Development Corporation has offered to construct the swing space
building. The new office building would be built on a park next to the U.
N. Headquarters complex and connected to the existing complex by a

1 Under this approach, the United Nations would have the additional
conference room within the swing space building.

tunnel. The United Nations currently plans to sign a long- term lease for
the building with the U. N. Development Corporation. The building would be
used as swing space during the 4 years of the renovation. Afterwards, the
United Nations would relocate most of its New York City staff that
currently work in office space outside the Headquarters complex to the
swing space building. This would include relocating staff out of office
space in two buildings currently leased from the U. N. Development
Corporation. According to corporation officials, the corporation could
then be able sell these two buildings and provide the proceeds to New York
City.

Approach 2 Under the second approach, the United Nations would replace the
South Annex, a two- story building on the U. N. Headquarters complex, with
a fourstory

building to use as swing space. The United Nations would lease additional
office space as needed for swing space. The renovation work would occur in
stages with five to ten floors of the U. N. Headquarters

renovated while staff rotate through the swing space. To avoid excessive
disruption, the meeting rooms would be renovated at night and on weekends.
Under this approach, the renovation would take 6 years and

cost more than $1.3 billion (see table 3).

Table 3: Preliminary Cost Estimate of Approach 2 Renovation component
Estimated cost (in millions)

Baseline scope $1, 094 Swing space construction and leasing 66 Secretariat
building window structure 36 Completed security upgrades -17

Subtotal $1, 179

Scope options 144

Tot al $1, 323

Source: GAO analysis of U. N. data.

The total cost estimate is higher under Approach 2 because the renovation
work would occur in stages since the limited swing space could not house
all U. N. headquarters staff. Also, the United Nations would construct an
additional conference room on the Headquarters complex. Under this
approach, the swing space cost* replacing the South Annex and additional
commercial leasing* would be less than leasing a swing space building from
the U. N. Development Corporation. As with Approach 1, this cost

estimate includes replacement of the Secretariat Building*s window
structure and various scope options that the General Assembly has not yet
decided to include. This cost estimate also excludes the security upgrades
that the United Nations will complete before renovation begins. Although
Approach 2 would cause the least disruption because meeting chambers would
be renovated when the rooms were not in use, the risk of cost overruns,
delays, and disturbance, and the perceived risk of exposure to asbestos is
higher.

Appendi I I I x U. N. Consultants and Subconsultants Table 4 presents the
firms that were involved in the conceptual planning process and noted in
this report as consultants to the United Nations or subconsultants to the
U. N. architect- engineering firm.

Table 4: Firms Involved in the Conceptual Planning Process Type of
consultant/ subconsultant Name of firm

Architect- engineering firm Renato Sarno Group Consulting engineer Ove
Arup & Partners/ Hanscomb a Cost estimating subconsultant Turner
Construction Cost estimating consultant Hill International Security
subconsultant Ducibella Venter & Santore Project management consultant
Atkins, Hanscomb, Faithful, and Gould Source: United Nations. a This
consultant was the architect- engineering firm involved in developing the
2000 Capital Master

Plan.

Appendi V I x Security Upgrades at the United Nations Completed and
Planned

In response to the terrorist attacks of September 11, 2001, the United

Security Initiatives

Nations implemented emergency security measures and also accelerated its
plans to implement some of the security measures that had been originally
planned for the renovation. The United Nations also worked with its
consultants to enhance the security component of the revised Capital
Master Plan. According to U. N. officials, to more effectively coordinate
the interface between the upgrades made after September 11, 2001, and the
security measures in the Capital Master Plan, the United Nations has hired
the same consultant to work on both packages, assigned some internal staff
to oversee both projects, and calculated the cost of any overlap in
security upgrade initiatives.

As shown in figure 7, the recent and planned security measures for the U.
N. Headquarters complex comprise four initiatives.

Figure 7: United Nations Security Initiatives Post 9/ 11 upgrades Capital
Master Plan upgrades

Emergency "Strengthening

Capital Master Plan Capital Master Plan upgrades

security" baseline scope

options

$3.7 million $26 million

$77 million $30 million

Largely implemented To be completed

Highest priority Not highest priority

in 2001: by 2004:

security upgrades: or upgrades to be

coordinated with  Perimeter security

 Access control  Additional access

N. Y. City: upgrades

upgrades control

 Strengthening  Evacuation route

 Renovate security  Blast- resistance

building structure upgrades

control room  Barriers on First

Avenue

$17 million accelerated

Sources: GAO analysis of Capital Master Plan and related U. N. documents.

Emergency Upgrades This emergency initiative was introduced in December
2001 in response to the September 11, 2001 terrorist attacks. In late
2001, the United Nations

organized a Senior Emergency Management Group to deal with major emergency
situations at the U. N. Headquarters. The Secretary- General identified
the most immediate, short- term security needs and requested

additional funding. These measures, estimated to cost $3.7 million,
included enhancements to the perimeter security and upgrades to the
emergency response system on the complex and were largely implemented by
March 2002.

Strengthening Security The strengthening security initiative also came as
a result of the assessments the United Nations conducted after September
11, 2001. This

initiative includes more long- term upgrades relative to the urgent
measures implemented under the previous initiative. Some of the upgrades
in this initiative (worth approximately $17 million) were part of the
Capital Master Plan and their implementation was accelerated because of
heightened security concerns. This initiative includes an upgraded access
control system for the entire complex and renovations to the existing
security

control room. As of April 2003, the United Nations is designing these
upgrades; U. N. officials expect them to be in place in 2004 at a total
cost of $26 million.

Security Upgrades in the

The U. N. security design consultant made 114 recommendations for the

Capital Master Plan Baseline

2002 Capital Master Plan. The U. N. security staff, along with the
consultant,

Scope

prioritized those recommendations, creating a list of *highest priority*
upgrades. These upgrades, totaling $77 million, were included as part of
the baseline scope for the 2002 Capital Master Plan. The upgrades
encompass additional visitor access control and blast resistance materials
in certain

areas on the complex.

Capital Master Plan Security

This initiative includes the U. N. security consultant*s remaining

Scope Option

recommendations that were either (1) not the highest priority or (2)
required coordination with New York City. Totaling $30 million, these
upgrades include strengthening the building structure and installing
vehicle barriers on some roads adjacent to the complex.

Appendi V x Comments from the United Nations

Appendi VI x Comments from the Department of State

Comments from the Office of Internal Oversight

Appendi VI x I Services

Appendi VI x I I

Comments from the U. N. Board of Auditors Note: GAO comments supplementing
those in the report text appear at the end of this appendix.

See comment 1. See comment 2. See comment 3.

See comment 4.

See comment 5. See comment 6. See comment 7.

See comment 8.

The following are GAO*s comments on the letter from the U. N. Board of
Auditors dated May 9, 2003.

GAO Comments 1. The board stated that the United Nations had approved
funds for the audit of the Capital Master Plan. A board official stated
that

approximately $35,000 was approved in April 2003 to conduct oversight of
the renovation. We have included this information in the report. We
modified our recommendation to acknowledge the board*s initial

funding, but continue to recommend funding for the board*s oversight
function over the course of the six- year renovation project.

2. We modified the report to reflect the board*s comment. 3. We modified
the report to reflect the board*s comment. 4. See comment 1. 5. We
modified the report to reflect the board*s comment. 6. We modified the
report to reflect the board*s comment. 7. No change made. The comment does
not provide additional clarity to

the report. 8. See comment 1. Since the renovation is likely to continue
for a number

of years, ensuring that the board has the necessary resources to conduct
oversight throughout the project will be critical. Accordingly, we have
modified our recommendation to clarify our position.

Appendi X I x GAO Contacts and Staff Acknowledgments GAO Contacts Phyllis
Anderson (202) 512- 7364 Terrell Dorn (202) 512- 6923

Staff Acknowledgments In addition to the individuals named above, Bruce
Kutnick, Ronald King, Valerie L. Nowak, Maria Edelstein, Jeffrey T.
Larson, Julia A. Roberts, Lynn

Cothern, Jonathan Rose, and Barbara Shields made significant contributions
to this report.

(320133)

a

GAO United States General Accounting Office

U. N. officials followed a reasonable process consistent with leading
industry practices and recognized guidelines in developing the
headquarters renovation plan* the first phase of a five- phase renovation
process. As the project advances, changes in scope, schedule, and cost are
to be expected. To finance the renovation, the Secretary- General
anticipates a no- interest

loan from the United States. However, U. S. and U. N. officials stated
that neither the United States nor the United Nations have specified the
nature of any financing commitment. GAO estimates that the financial
impact of the renovation to the federal government, including providing a
$1.2 billion nointerest loan and repaying a share as a U. N. member, would
be over $700 million, depending on the loan terms and conditions.

Several critical milestones must be met for construction to begin as
planned, including securing a financing commitment and signing a lease for
a building where U. N. staff and delegates would relocate during the
renovation (see diagram below). As the renovation project progresses,
additional

management, oversight, and monitoring is needed. The United Nations plans
to complete a project management plan, which would help the United Nations
control cost and schedule. While the United Nations has approved initial
funding for the Board of Auditors to conduct oversight of the renovation
and the board is preparing its audit strategy, the Office of Internal
Oversight Services does not have the resources or audit strategies needed
to effectively conduct oversight of the renovation. The Department of
State has assembled a task force to monitor the renovation, but the
department will need to define the task force*s mission and program goals.
Doing so would allow the department to develop strategies for employing
the appropriate skill mix needed to achieve a successful outcome for the
task force.

Key Milestones for the U. N. Renovation

a United Nations Development Corporation.

The United Nations estimates that its planned renovation of the seven
buildings on the Headquarters

complex could cost almost $1. 2 billion. As the host country and the
largest contributor to the United Nations, the United States has a
significant interest in this project. This report (1) assesses the
reasonableness of the U. N. process to develop the renovation plans, (2)

analyzes the potential cost to the United States, (3) identifies critical
milestones before construction can

begin, and (4) discusses efforts to monitor and oversee the project. GAO
is recommending that the Secretary of State encourage the United Nations
to (1) complete and

implement an effective project management plan and (2) provide its
oversight offices with sufficient resources to conduct oversight
throughout the renovation. GAO is

also recommending that the Secretary of State define the mission and
program goals of the task force currently monitoring the project and
ensure that it has the necessary resources for the duration of the
project. The United Nations and

Department of State agreed with our findings and recommendations. The
Board of Auditors provided updated information on its budget and disagreed
with our recommendation calling for the United Nations to provide it with
resources to conduct oversight of the renovation www. gao. gov/ cgi- bin/
getrpt? GAO- 03- 566. To view the full product, including the scope

and methodology, click on the link above. For more information, contact
Joseph A. Christoff at 202- 512- 8979 or christoffj@ gao. gov. Highlights
of GAO- 03- 566, a report to

Honorable Michael Enzi, U. S. Senate

May 2003

UNITED NATIONS

Early Renovation Planning Reasonable, but Additional Management Controls
and Oversight Will Be Needed

Page i GAO- 03- 566 U. N. Renovation

Contents

Contents

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Appendix I

Appendix I Scope and Methodology

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Appendix II

Appendix II Two Approaches to Renovating the U. N. Headquarters Complex

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Appendix II Two Approaches to Renovating the U. N. Headquarters Complex

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Appendix II Two Approaches to Renovating the U. N. Headquarters Complex

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Appendix III

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Appendix IV

Appendix IV Security Upgrades at the United Nations

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Appendix V

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Appendix VI

Appendix VI Comments from the Department of State

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Appendix VII

Appendix VII Comments from the Office of Internal Oversight Services

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Appendix VIII

Appendix VIII Comments from the U. N. Board of Auditors

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Appendix VIII Comments from the U. N. Board of Auditors

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Appendix IX

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